Takeaway number 5 – 12:27
5 traits of the reversed tenbagger
If you listened in to the previous episode, you might remember what a tenbagger is. It is an investment you made in which the price has risen to 10x your purchasing price.
A reverse tenbagger would be a stock where the price has dropped drastically.
- Many players are looking for a way to get into hot industries. Competition is typically bad news for profits
- If someone states that this investment opportunity is the next Google, it is the next Apple… usually that is not the case
- Diversified focus is usually not good. When a company acquires other companies in unrelated industries or sectors, Peter Lynch refers this diversified focus as diworsefication. His conclusion is “stay away”.
- If a company is relying on one customer for major parts of its revenue stream, it will give the company a bad bargaining and negotiation position. Thus, the company might be squeezed by this only customer.
- These investments would be long shots, often thought of as being on the brink of doing something miraculous… like having a cure for cancer
Let us do a recap of the past four episodes and finally this which reveals key take aways from Peter Lynch’s book One Up on Wall Street.
Firstly, because the game is rigged in the favour of the amateur, the individual investor such as you and me can beat the professionals
Secondly, use your purchasing, consumption habits and experience to identify potential investment opportunities where you have an edge over the other investors, because of your knowledge.
The third key tells us that all investment opportunities aren’t created equal. Peter Lynch categorizes companies by slow growers, stalwarts, fast growers, cyclicals, turnarounds and asset plays
10 traits of the tenbagger is the 4th key takeaway from Mr Lynch. Some of these positive traits of a stock is that it operates in a niche, reoccurring revenues insider buying.
Today we went through general negative characteristics, such as diworsefication and single customer dependency.
This concludes this series of key takeaways of Peter Lynch’s book one up on wall street.